Comcast earnings: All eyes on Sky and NBCUniversal

When Comcast reports results, investors will be looking for more information on company’s potential Sky deal

Bloomberg News

Comcast will announce second-quarter earnings on Thursday morning.

By

SarahToy

Reporter

When Comcast reports its second-quarter earnings Thursday morning, investors will be looking for commentary on the company’s potential Sky deal.

The company said last week that it would focus on acquiring Sky after dropping its bid for 21st Century Fox’s
FOXA, +0.35%
entertainment assets. Investors want to know what Comcast’s plans for the European pay-TV giant are.

In July, Comcast
CMCSA, +1.00%
raised its offer for Sky to £14.75, a 5% increase over Fox’s latest bid, putting the company’s value at £26 billion, or $34 billion. Fox currently owns 39% of Sky.

Some analysts see the Comcast push for Sky — and its previous push for Fox’s entertainment assets — as a sign of the company’s commitment to moving away from cable toward content creation and distribution.

“None of this has anything at all to do with what used to be Comcast’s core business: cable,” wrote veteran research analyst Craig Moffett of MoffettNathanson in a blog post last week, adding, “Comcast’s pursuit of Sky is premised on the view that Sky is a necessary piece of a global over-the-top brand.”

NBCUniversal is also a key part in the company’s future in media, and its film unit will be an especial focus on Thursday. Second-quarter releases such as “Jurassic World: Fallen Kingdom” boosted the unit’s domestic box office 14% to reach $425 million in the latest quarter, MoffettNathanson analysts wrote in a note last week.

Here’s what to expect.

Earnings: Analysts polled on FactSet expect Comcast to report per-share earnings per share of 60 cents, up 15% from 52 cents a year earlier. Last quarter, the company reported EPS of 62 cents, beating the FactSet consensus of 59 cents. Estimize, which crowdsources estimates from buy-side and sell-side analysts, fund managers, academics and others, expects EPS of 62 cents.

Revenue: FactSet analysts expect revenue of $89.7 billion in the second quarter.

Stock movement: Comcast stock has tumbled 15.4% so far this year, much of the downturn due to the uncertainty surrounding the company’s bid for Fox’s assets, as well as continued fear over video subscriber losses, analysts say. Of the 23 analysts who cover Comcast in FactSet, 18 rate the stock as a buy or overweight and 5 rate it at hold or neutral. The average price target is $43.38, while the stock’s current price is $33.82.

What else to look for: Investors will also be keeping a watchful eye on Comcast’s high-speed internet numbers this week.

It’s no secret the company is losing cable TV subscribers as consumers drop pay-TV in favor of streaming services like Netflix
NFLX, -1.12%
or Hulu. At the same time, Comcast remains optimistic about its filmmaking and high-speed internet business prospects.

“We continue to be confident in our outlook for high-speed Internet subscriber growth," Comcast CFO Michael Cavanagh said in April, shortly after the company announced first-quarter earnings. “The broadband market is expanding as more Americans adopt high-speed data. Currently, only about 80% of American households subscribe to Internet access and we believe this number will continue to expand,” he added.

Investors will want to know if the company can put its money where its mouth is.

Comcast has posted losses in net video subscribers for the past four quarters, but those same quarters also saw increases in net high-speed internet additions. Frank Louthan, managing director of equity research at Raymond James, sees things continuing down that line, saying people will need high-speed internet service as they cut the cord in favor of streaming.

”Wall Street has an irrational fear of video subscriber losses,” said Louthan. He acknowledged second-quarter video subscriber numbers could be disappointing, but gains from broadband subscribers and its business services branch would help offset that.

“As consumers demand a higher portion spend on broadband versus linear video, Comcast will be in a position to support that and it will be profitable," he said.

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